When you make an investment in a mutual fund, you are allotted units which can be held either in demat form or physical form. Although both these forms are electronic, they differ in terms of account type, statement provider, charges levied, benefits, etc.
So today through RankMF knowledge center, we aim to educate you about the Mutual fund investment through physical form and demat form and all the information and details you will need. Through this article, you will get to know about the following:
- Mutual Fund Investment through Physical form
- Mutual Fund Investment through Demat form
- Procedure for conversion of demat units into a Physical / Statement of Account form
- Procedure for conversion of Mutual fund units into Demat form
- Demat form vs. Statement of Account form
Mutual fund investment through physical form means holding it in the traditional Statement of Account (SOA) form. The investor does not get any physical unit or other certificates. Under the physical route, you directly invest in mutual funds through an Asset Management Company (AMC) or through a bank that sells mutual funds. If you have invested in a mutual fund scheme, the AMC/ fund house has to send you a statement with details of your investment. Units are held by Registrar and Transfer Agents (RTAs) and your fund house, through its RTAs, has records and track of those units that lie in the SOA form.
You are issued account statements which cover scheme related details you have invested in. The statement of account contains details of their holdings such as purchase value, number of units and current value. If you have invested in multiple schemes of different fund houses, you will get a different account statement from each fund house.
For a more consolidated view of all your holdings, you can opt for a Consolidated Account Statement. Tracking your mutual fund investments (portfolio) have become convenient as RTAs like Karvy and CAMS provide a consolidated account statement, which shows all details of transactions in stocks, mutual funds and other financial products. On-demand statements of mutual fund holdings can be generated through web portals of Registrar and Transfer Agents (RTA) like CAMS, Karvy etc.
Mutual fund investment through demat form means that mutual fund units which are bought and sold on the exchange or through brokers are held and traded in a “Dematerialized” or “Demat” form. If you have a demat account, you can buy and sell mutual funds schemes through this account. A demat account is a dematerialized account to hold listed stocks, debentures, mutual funds and other securities in electronic form. This is an alternative to holding Mutual Fund Investment in the Statement of Account (SOA) form.
To store shares in a demat format, a person needs to open a demat account with a Depository Participant (DP) such as Banks or Members of Stock Exchanges registered with SEBI such as brokerage firms. DPs are agents of a depository (NSDL or CDSL). A depository is a place which holds securities belonging to its clients in demat form and maintains ownership records. A depository holds securities like Shares, Debentures, Bonds, Government Securities, Mutual Fund Units, etc. of investors and facilitates trading in dematerialized form.
If your mutual fund holdings are in a SOA/physical form, you can also link your mutual fund holdings to your demat account for one point access to your entire portfolio of stocks and mutual funds. If you want to hold your MF units in demat, you can either opt for it by submitting a Conversion Request Form (CRF) to your DP or choose to buy directly in a demat form through a broker on a stock exchange.
The broker through whom you buy and sell the securities sends demat account statement which provides details of your DP holdings either monthly or as and when you initiate a trade. You can also request for your demat account statement from your broker as and when required.
Step by step process is explained below:
- Request your broker or a depository participant, for a ‘Restatement Form’ for conversion of units from demat form to physical form.
- You need to fill the form and validate it with your signature and submit it to your DP along with a demat account statement in proof of holding units in the demat form.
- After verification, the DP will process & register the request in his system, after which an electronic number gets generated in the system and the DP forwards the request to the AMC/ R&T agent
- While processing the request, AMC/R&T will conduct their own due diligence and on completion of that, will accept the request and confirms conversion to physical form.
If you are already subscribed to a mutual fund scheme through the traditional approach, you can convert it into a demat form by following the steps below:
- Request your broker or a depository participant, for a ‘Dematerialization Request Form’ (DRF) for CDSL or Conversion Request Form (CRF) for NSDL for conversion of units held in physical form to demat form.
- You need to fill the form and validate it with your signature.
- Attach the account statement, issued by the AMC or Fund houses along with the DRF/CRF, and submit the same to your DP.
- The DP checks the validity of your holdings with the issuer – the AMC or the RTA (eg. CAMS, Karvy). After vetting the form thoroughly, they shall send you the acknowledgment report. Only then, your application for conversion into the electronic form will be processed.
- After due diligence on their end, the AMC makes the DP the holder of the security (while you are the owner) and they’ll credit your existing units in your demat account.
|Mutual Fund Investment mode||You can buy Mutual Funds by opening a demat account with a DP, which can be a broker or a bank||You can directly invest through the AMC/ fund house’s online portal|
|Coverage||In a Demat Account, you can hold mutual fund units in the same account in which you hold shares and securities. It means you can buy/sell mutual fund units electronically and track all your capital market investments in a single statement||A Statement of Account (SOA) only covers the mutual fund units held with the RTA. It does not hold shares and securities in its account. In order to hold shares and securities and trade in them, you need to open a separate demat account.|
|Benefits||1) It helps to consolidate all of one’s holdings and allows a view of investments in a single snapshot, rather than having to go through several statements issued by different AMCs.||1) If you don’t trade in fund units, you can skip/do without opening a demat account to avoid extra costs associated with demat transactions. Furthermore, you can apply for a consolidated account statement (CAS) which gives details of financial transactions across all your equity and MFs holdings.|
|2) Buying and selling all units through a single platform making it faster and simpler||2) You can do STP/SWP through SOA form which is not possible under the demat route|
|Charges||Brokerage charges include all the services from the broker which includes demat account opening charges, annual maintenance charges, broker commission at the time of purchasing or selling MF units which may vary from broker to broker. These charges are over and above the fund management charges of mutual funds||Only fund management charges of mutual fund schemes|
|Form of Statement||Through Email / Physical copy by the broker||Through Email / Physical copy by AMC|
|Frequency||As and when the investor initiates the trade, he gets notified when shares are credited to his demat account or a monthly statement, whichever comes earlier||Regular monthly account statements|
|Statement Provider||Demat Account Statement issued by Broker||Statement of Account (SOA) issued by AMC|
|Redemption of units||– You can go to your DP and fill a redemption form/ DIS slip or you can go to your broker or redeem units through the Exchange platform (BSE Star & NSE MFSS)||-You can submit your redemption form either at your AMC’s office or to your registrar and transfer agent (R&T)|
|– Units can be redeemed online by logging into your trading account provided by your broker. Select the fund and the number of units you wish to redeem and confirm your order||– Units can be redeemed online by logging into the account on the AMC’s website. Select the fund and the number of units you wish to redeem and confirm your order|
|Transmission to legal heirs in case of death of unitholders||You can transfer MF units by opening a new demat account in legal heir’s name, submit the death certificate and a copy of the deceased unitholder’s will and other required documents, and get the units transferred to the new demat account||You would need to submit documents such as a transmission request letter, death certificate, bank account details, KYC to multiple AMCs /RTAs if you hold mutual fund units of schemes from different AMCs. e.g you hold MF units from schemes of 5 different AMCs, you will have to submit required documents to each of the AMC|
|Loan against Mutual Funds units||Loan against Mutual Funds units is possible and it can be used as collateral for margins||Loan against Mutual Fund units is not available under SOA form|
With this, we conclude our discussion on the topic of Demat & Physical form of Mutual Fund Investment. For more information about investing in mutual funds, stock trading and useful related articles, visit RankMF.com
(Note: This content is for information purpose only. Avoid trading and investing based on the information given above. Before investing in stocks or mutual funds, please conduct proper due diligence).